Financial Transactions and Regulatory Compliance Review

Activist Settlements vs. Proxy Fights in 2018

One strategy used by companies seeking to reduce the publicity that comes with activist campaigns has been to give ground to the assailants – that is, to make a settlement instead of submitting to a proxy fight.

In order to find out how shareholder activism will impact 2018 dealmaking, Toppan Vintage, in partnership with Activistmonitor and Mergermarket, is pleased to present the newest edition of the M&A Pulse newsletter.

Toppan Vintage question: What do you think will happen to the rate at which companies make settlements with activists instead of having proxy fights?Leading deal experts weigh in...

In our survey, 76% of respondents said they believe the rate at which companies make settlements with activists will increase either significantly (32%) or somewhat (44%) over the coming 12 months.

The number of settlements jumped dramatically in 2016, rising 50% to more than 100 on the year, ActivistMonitor data shows. However, the trend reversed course in the first half of 2017, with a yearover- year decline of 53% in settlements7 – indicating that companies are still grappling with the best approach to take when activists pounce.

Naturally, companies with weaker recent financial performance may be more inclined to close an issue privately instead of taking it to a shareholder vote.

For instance, food and beverage producer Hain Celestial agreed in September 2017 to let activist Engaged Capital overhaul its board by nominating six new members – one year after the company’s stock fell more than 35% in the wake of an accounting scandal.

A partner at a hedge fund with over US$30bn in AUM said he thinks activist targets will increasingly choose to settle in order to maintain stability in their businesses. “As campaigns get stronger and other shareholders also begin flexing their muscles, companies will have to make settlements to regain their focus on operations,” he said.

Last year saw shareholder activists super-sizing their bets and seeking new targets in foreign markets. This growth has prompted companies to become more strategic in dealing with activist demands, though investors are also viewed as better suited to combat opposition against their campaigns. With experts saying that sector distress and poor individual performance will leave many companies vulnerable to activist campaigns in the year ahead, many questions lie ahead for both sides.

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